Delta’s Transformation Efforts Progress

12th Nov 2004

Delta Air Lines today
confirmed that it was advised by the Air Line Pilots Association,
International (ALPA) that Delta pilots ratified a new contract to deliver
$1 billion in long-term, annual savings to the company. Many of the key
provisions in the contract, which is a critical component of Delta’s
comprehensive out-of-court restructuring efforts, are scheduled to take
effect Dec. 1, 2004. The savings will be realized through a combination of
changes to wages, pension and other benefits, and work rules. In an internal memorandum to Delta pilots, Delta CEO Jerry Grinstein
recognized the achievement so far of the company’s multi-faceted efforts
to avoid bankruptcy. “Your contributions, coupled with the financial
benefits realized from Delta people throughout the company, other
stakeholders, and our own operational improvements, represent a Herculean
effort to control our own destiny—a feat that is often attempted but
seldom attained in our industry,” he wrote.

Delta’s combined restructuring efforts are intended to deliver $5 billion
in annual financial benefits by 2006, as compared to its 2002 base year—
an amount the company has calculated it needs to have the opportunity to
achieve long-term viability. Through its previously announced Profit
Improvement Initiative (PII), Delta is on track to deliver $2.3 billion of
the $5 billion annual target by the end of 2004.

Delta is implementing a comprehensive transformation plan, announced in
September, to deliver the targeted savings while improving operational
efficiencies and strengthening its customer focus.

“We are preparing to implement the largest single-day schedule
transformation in our history. By Jan. 31, 2005, more than 51 percent of
our network will be restructured, creating new opportunities for increased
efficiency, better operational performance, and improved aircraft
utilization. Buttressed by additional improvements to our product and
services, network, and fleet, to be carried out immediately and over the
next 34 months, our comprehensive plan is designed to take it to the
competition and win,” Grinstein noted.

Delta has entered into commitment letters with American Express and
General Electric under which those companies agreed to provide Delta with
a total of $1 billion of financing. These financing commitments are
subject to significant conditions. The company also is in discussions with
aircraft lessors, vendors and suppliers to achieve an additional $100
million in annual financial benefits.

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Delta had previously announced a reduction of between 6,000-7,000
additional non-pilot jobs, including a 20 percent reduction in its officer
ranks. Other steps include further changes to non-pilot pay and benefits,
most of which are scheduled to take effect Jan. 1, 2005. These reductions,
together with operational changes and remaining PII initiatives, are
expected to deliver approximately $1.6 billion of the total annual
benefits targeted for 2006.

“Certainly, the completion of hard but necessary restructuring steps is
not a cause for celebration. There are no winners in this situation. There
are only people caught in the grips of a permanently changing industry and
a demanding marketplace who are trying very hard, together and in good
faith, to preserve careers and proud professions while helping their
company survive, provide jobs and eventually grow profitably,” Grinstein
commented.

The company is planning soon to unveil details of its Employee Reward
Program—a combination of equity, profit sharing and incentive
performance payouts.

“Based on our determined and collective efforts, we now have a platform in
place that we hope will result in long-term viability and a plan to
tangibly recognize the significant contribution Delta’s people are making
to their company,” Grinstein noted. “Long-term viability, and a program
that delivers an upside when a company has recovered and times are better,
provide the best basis for stable and rewarding careers,” he said.——-